Olvi Group’s Interim Report January–September 2023

OLVI PLC                             Interim report 17 October 2023 at 9 am

Olvi Group’s interim report January–September 2023

Sales volume decreased as a result of unfavourable weather in late summer – measures to improve profitability continue

July–September 2023

• Net sales decreased by 2.2% and were EUR 171.1 (174.9) million. Unfavourable weather in late summer decreased the sales volume by 5.4%
• The operating result was EUR 20.5 (25.0) million.
• The relative gross profit remained at the same level as in the second quarter. However, it decreased year-on-year because of the continued high level of costs.
• A strong balance sheet and a solid financial position, with no net debt, lay a good foundation for the further development of the company.

January–September 2023

• Net sales increased by 10.8% and were EUR 495.9 (447.6) million. Sales volume increased by 3.6%.
• The adjusted operating result was EUR 59.3 (58.0) million, and the operating result was EUR 47.1 (58.0) million. The operating result decreased because of a fine paid by the Belarusian subsidiary.

Near-term outlook (guidance unchanged)

Olvi Group’s adjusted operating result for the 2023 financial year is expected to increase year-on-year.

The growth in the operating result is expected to come from Finland and the Baltic Sea region. Price increases and improved operational productivity are expected to drive profitability towards the end of the year. 

The Group’s key figures

Olvi presents the adjusted operating result and the adjusted profit for the period as alternative performance measures to improve comparability between reporting periods. In January–September 2023, the items affecting comparability not included in the adjusted operating result and the profit for the period totalled EUR 12.2 million and were related to the fine imposed on the Belarusian subsidiary.

Business development

CEO Patrik Lundell:

July–September 2023

Unfavourable weather in late summer reduced demand in all sales channels, especially in the hotel, restaurant and catering channel (HoReCa). Olvi Group’s sales volume decreased by 5.4% in the third quarter, and its net sales decreased by 2.2%. Although sales volumes decreased in nearly all product categories because of a change in demand, we were able to increase sales in soft drinks and energy drinks. Net sales increased year-on-year in Finland and the Baltic Sea region as a result of higher sales prices. A change in consumer behaviour towards cheaper products was observed at the end of the third quarter.  

Although the increase in production costs slowed down compared with the first half of the year, production costs are expected to remain high, and purchase prices are not expected to decrease significantly in the near future. In terms of the relative gross profit, profitability remained at the previous quarter’s level because price increases were implemented towards the end of the third quarter. The operating result decreased by 17.8% as a result of lower sales volumes and higher business costs.

The Group’s strategy work continued with the development of strategic projects in the third quarter. Olvi will publish its updated strategy in December.  

January–September 2023

The sales volume increased by 3.6% and net sales grew by 10.8% in January–September 2023. The net sales growth was supported by price increases and market shares, which remained at a good level. The cost of sales remained high in the third quarter. In January–September, the cost of sales totalled EUR 311.0 million, with an increase of 13.1% year-on-year. Other costs increased by 9.1%.

The adjusted operating result increased by 2.1% year-on-year and was EUR 59.3 million. The company’s performance improved as a result of price increases, particularly in the second quarter.

Segment-specific business development: July–September 2023

Net sales increased by 6% in Finland as a result of price increases

The net sales of Finnish business operations increased by 6.0%, while their sales volume fell by 1.6%. However, Olvi’s market share grew. The Finnish operations’ operating result was EUR 5.7 million, with a decrease of 17.8% year-on-year. The profit margin decreased, as costs of sales increased by 11.7% from the previous year. Price increases will continue to be implemented within the limits of contractual terms and conditions and price periods to restore profitability over the long term.

 
Thanks to price increases, the operating result for the Baltic Sea region remained close to the previous year’s level

The sales volume in the Baltic Sea region decreased by 11.8%. Sales volume development was affected especially by unfavourable weather and the decrease in consumers’ purchasing power. The impacts were reflected in retail trade and HoReCa, as well as in harbour and cross-border trade. Despite the decrease in the sales volume, net sales increased by 0.8%. 

The operating result decreased by 2.3% to EUR 7.7 million. Price increases have largely covered increases in variable costs. General inflation has caused fixed costs to increase with a delay.

The local currency weakened in Belarus and affected euro-denominated net sales

Net sales decreased by 18.6%, and the sales volume fell by 0.9%. The weaker exchange rate had a significant impact on euro-denominated net sales, as net sales in the local currency increased by 6.8%. The operating result decreased by 28.6% to EUR 7.4 million. In the local currency, the operating result decreased by 6.5%.

Investments

Olvi Group’s expansion and replacement investments were EUR 17.3 (27.0) million in January–September. Investments decreased because of changes in the schedules of some projects. Of the investments, EUR 8.6 million were related to Finland and EUR 7.9 million to subsidiaries in the Baltic Sea region. Only replacement investments necessary for the continuity of production have been made in Belarus through the subsidiary’s income financing, totalling EUR 0.8 million.

Olvi is investing in environmental friendliness and the cost-effectiveness and capacity of production. The new carbon dioxide capture and purification equipment at the Iisalmi plant was introduced during the quarter. The equipment will reduce emissions from the transport of purchased carbon dioxide, use carbon dioxide generated in production, secure the availability of the critical raw material and generate cost savings. In addition, Olvi continued to invest in the production and storage capacity required for business growth and in improving operational efficiency.

Sustainability

Environmental sustainability

Olvi Group seeks to promote sustainable water use in all its locations. This goal was supported by participating in the CDP water report for the first time. The reporting concerns 2022. The Group has also started preparing a biodiversity report concerning its own operations. The report will later be expanded to cover the value chain.

Social sustainability

Olvi Group promotes sustainability expertise and awareness through internal training at all organisational levels. A two-day sustainability seminar was held for the Group companies’ management teams to discuss various sustainability themes extensively. As a special focus, the training covered human rights risks and their assessment in the Group’s own operations and the value chain. This supports consistent sustainability work in the companies.

Good governance

Olvi Group is preparing for the requirements of the Corporate Sustainability Reporting Directive (CSRD). The company is currently conducting a double materiality analysis with a third party. Olvi is also preparing for future legislative requirements concerning packaging and packaging waste by gradually switching to plastic caps that remain on bottles and Tetra Pak containers.

Seasonal nature of operations
 

The nature of the Group’s business operations involves seasonal fluctuation. The net sales and operating result of the geographical reporting segments are not accumulated steadily. Instead, they fluctuate in accordance with the special characteristics of the seasons of the year and product seasons.

Sales development

Olvi Group’s sales volume grew by 3.6% in January–September, totalling 773.1 (746.4) million litres.
 

The Group’s net sales in January–September increased by 10.8% and were EUR 495.9 (447.6) million. 

Financial performance

The Group’s operating result in July–September was EUR 20.5 (25.0) million, or 12.0% (14.3%) of net sales. The third-quarter operating result does not include items affecting comparability. The adjusted operating result increased by 2.1% in January–September and was EUR 59.3 million. The operating result in January–September was EUR 47.1 million, down 18.9% from the previous year. A fine of EUR 12.2 million paid in Belarus decreased the operating result for the reporting period.

* The Belarusian segment does not include depreciation during 2023 because of an impairment of non-current assets in the 2022 financial statements. Furthermore, the operating result for the comparison period does not include depreciation, which was not recognised when the segment was included in assets held for sale.

The Group’s profit after taxes in January–September was EUR 32.0 (46.1) million.

Earnings per share calculated from the profit attributable to the owners of the parent company were EUR 1.54 (2.19) in January–September.

Financial position and the balance sheet

Olvi Group’s balance sheet total at the end of September 2023 was EUR 494.2 (552.6) million. The balance sheet total is reduced by an impairment of EUR 35 million in the Belarusian business segment in connection with the 2022 financial statements. Equity per share was EUR 13.66 (15.89). The equity ratio was 57.3% (60.3%), and gearing was -7.7% (-18.9%). The Group’s liquidity indicator, the current ratio, remained at the same good level as before, at 1.3 (1.3). Interest-bearing liabilities amounted to EUR 5.1 (7.2) million at the end of September. Of the interest-bearing liabilities, current liabilities accounted for EUR 2.5 (4.7) million.

Olvi Group’s balance sheet and financial position are strong. The company has no net debt. The company’s ability to invest has remained good.

Cash assets stood at EUR 26.8 million at the end of the September, with a decrease of EUR 43.4 million year-on-year. Cash flow from operations was EUR 10.6 (55.8) million and improved seasonally from the previous quarters but decreased from the comparison period. Working capital was reduced by the parent company’s decision to replace the factoring of accounts receivable with other forms of short-term financing at the beginning of 2023, as well as by higher stock levels and a fine of EUR 12.2 million paid by Lidskoe Pivo. Cash flow from investing activities was EUR -17.5 (-25.5) million, and cash flow from financing activities was EUR -25.1 (-20.9) million. 

Personnel

In January–September, Olvi Group had an average of 2,395 (2,346) employees, with an increase of 2.1%.

Olvi Group’s average number of personnel by segment:

Board of Directors and management

No changes took place in Olvi plc’s Board of Directors and management during the third quarter.

Other events during the review period

Changes in the Group structure

No changes took place in Olvi’s subsidiary holdings during the third quarter of 2023.

Business risks and their management

The war in Ukraine has significantly increased business risks. The coronavirus pandemic caused problems in the availability of raw materials and packaging materials, and the war in Ukraine has further complicated the procurement of materials. The increase in the prices of packaging materials, which started during the coronavirus pandemic, has continued after the pandemic. The prices of raw materials, especially barley malt, sugar and carbon dioxide, have risen to high levels. Uncertainty in prices and availability has continued in the market because of the war and weather events caused by climate change. The considerable fluctuations in energy prices continue. Logistics costs remain at a high level because of rising fuel prices. Olvi will respond to the increase in costs by improving operational productivity and continuing price increases as far as possible.

Consumer prices have risen rapidly, especially in Europe. General cost inflation has begun to reduce consumers’ purchasing power and affect consumer behaviour. This change is already being reflected in a shift in consumption to more affordable product options, and overall consumption may decrease. Olvi Group is responding to the changes by continuing to develop its product portfolio and operations to ensure profitable growth.

The geopolitical situation has affected Olvi’s operating environment. However, recent events related to the offshore gas pipeline between Finland and the Baltic countries have not affected the availability of natural gas at Olvi’s plants.  Considerable uncertainty is related to the Belarusian business operations in terms of the weakening of the exchange rate, the unpredictability of the operating environment and local legislation, trade sanctions and the functioning of financial transactions with Western countries. Beginning in December 2022, Olvi’s subsidiary Lidskoe Pivo was inspected in a special audit carried out by the State Control Committee of the Republic of Belarus. The audit resulted in a significant fine, which was paid from local funds. The fine significantly reduced the subsidiary’s cash assets. Olvi’s Belarusian subsidiary operates by means of its own cash flow financing. The cash and cash equivalents of the Belarusian subsidiary stood at EUR 11.4 million at the end of the review period. In addition, the company’s shares are subject to a sales ban, as a result of which Olvi has stopped the process to sell Lidskoe Pivo. Olvi has stated to the Belarusian authorities that it complies with local and international laws, and has stressed the importance of local operational capability and the maintenance of owners’ rights in the current operating environment. 

 
Olvi Group has prepared several scenarios related to the development of the business environment and is prepared to respond to changing situations. The company is prepared for production disruptions and has drawn up continuity plans related to the availability of labour, raw materials and energy, for example. The company has made investments to secure energy supply and has also made efforts to ensure the availability of raw materials


and packaging materials. The separation of the Belarusian operations from the Group has been carried out with determination, and the company has prepared for the uncertainties mentioned above based on various scenarios.  

A more detailed description of the normal risks related to business operations is provided in Olvi Group’s Board of Directors’ report and the notes to the financial statements and on the company website (Investors > Olvi as an investment > Risks and risk management).  

Events after the review period

There are no significant events to report after the review period.

OLVI PLC
Board of Directors

Webcast

Olvi plc and its CEO will hold a press conference, which can be followed at
https://olvi.videosync.fi/q3-2023-suomi from 10 am onwards on the date of publication of this interim report.
The press conference will be held in Finnish.

A recording of the webcast will become available on the company’s website at https://www.olvigroup.fi/en/releases-and-publications/financial-releases/

More information:

Patrik Lundell, CEO, Olvi plc, tel. +358 290 00 1050
Tiina-Liisa Liukkonen, CFO, Olvi plc, tel. +358 29 000 1050

TABLES:
- Consolidated statement of comprehensive income, Table 1
- Balance sheet, Table 2
- Statement of changes in equity, Table 3
- Cash flow statement, Table 4
- Notes to the interim report bulletin, Table 5

DISTRIBUTION:
NASDAQ OMX Helsinki Ltd
Key media outlets
www.olvi.fi

* 1–9/2023: income taxes include EUR 3.3 million in taxes from previous financial periods related to the Belarusian segment.

OLVI GROUP     TABLE 5

NOTES TO THE INTERIM REPORT

The interim report has been prepared in accordance with IAS 34 Interim Financial Reporting, applying the same accounting principles that were applied to the 2022 financial statements (31 December 2022).

The information in the interim report is presented in thousands (1,000) of euros. For presentation, individual figures and totals have been rounded up to full thousands, which causes rounding differences in the totals. Exchange rates obtained from the Central Bank of Belarus have been used as the exchange rate for the Belarusian rouble. The key ratios have been calculated by using accurate euro-denominated figures. The information published in the interim report has not been audited.

The registered share capital totalled EUR 20,759 thousand on 30 September 2023.

A dividend of EUR 1.20 per share for 2022 (EUR 1.20 per share for 2021), totalling EUR 24.8 (24.9) million, was paid on shares in Olvi plc. The dividend was paid in two instalments. The first instalment, EUR 0.60 per share, was paid on 20 April 2023. The second instalment, EUR 0.60 per share, was paid on 5 September 2023. Series K shares and Series A shares provide their holders with equal rights to dividends. The Articles of Association include a redemption clause concerning Series K shares.

4. SHARE-BASED REWARDS

The costs related to incentive plans totalled EUR 524.4 thousand in the review period.

5. TREASURY SHARES 

At the end of the review period, Olvi plc held a total of 28,692 of its own Series A shares as treasury shares. The total acquisition price of treasury shares was EUR 880.8 thousand. The treasury shares do not provide the company with voting rights. The Series A shares held by Olvi plc represent 0.14% of all shares in the company and 0.03% of all votes provided by the shares in the company. The treasury shares account for 0.17% of all Series A shares in the company and 0.17% of the votes provided by all Series A shares in the company.

Olvi did not receive any flagging notifications under chapter 2, section 10 of the Securities Markets Act in January–September 2023.

12. VALUATION OF THE BELARUSIAN BUSINESS SEGMENT

For the 2022 financial statements (31 December 2022), the management assessed the book value of the Belarusian business segment in a changed operating environment. An impairment of EUR 35.0 million was recognised based on the assessment. Based on the management’s assessment and testing, the balance sheet valuation of the Belarusian business segment on 30 September 2023 is materially at the right level, and there is no need to change the impairment recognised. The Belarusian business segment’s balance sheet value was EUR 31.8 million on 30 September 2023.

13. CALCULATION PRINCIPLES FOR KEY FIGURES

In its summary of key ratios (page 1), the Group presents key ratios directly derived from the consolidated income statement (net sales, operating result, profit for the period and their proportions of net sales, as well as earnings per share). (Earnings per share = Profit for the period attributable to owners of the parent company / Average number of shares during the period, adjusted for share issues).

In addition to its IFRS-based consolidated financial statements, Olvi plc presents Alternative Performance Measures that describe the financial performance of its business operations and provide a comparable overview of the company’s profitability, solvency and liquidity.

The Group has applied the European Securities and Markets Authority’s (ESMA) new guidelines (effective since 3 July 2016) on Alternative Performance Measures and has determined such measures as follows:

The Group presents sales volume data in millions of litres as an Alternative Performance Measure that supports net sales. Sales volume is an important and widely used indicator in the industry that describes the scope of operations. To improve comparability between reporting periods, the Group also presents the adjusted operating result and the adjusted profit for the period as Alternative Performance Measures. The adjusted operating result is calculated by deducting significant items affecting comparability from net sales. The corresponding items have been deducted from the profit for the period when calculating the adjusted profit for the period.

Investments consist of increases in fixed assets, excluding increases under IFRS 16.

Earnings per share = Equity attributable to owners of the parent company / Number of shares at the end of the period, adjusted for share issues.

Equity ratio, % = 100 * (Equity attributable to owners of the parent company + non-controlling interest) / (Balance sheet total).

Gearing, % = 100 * (Interest-bearing liabilities – Cash in hand and at bank) / (Equity attributable to owners of the parent company + Non-controlling interest).